Forget First to Market

The first-to-market business strategy doesn’t reward advanced biofuels or biobased chemical companies because the race to provide drop-in biofuel or renewable chemicals isn’t about brand loyalty or opening a facility first, it’s about a flawless production process.For Amyris Inc., considered at one time a leader in the race to commercialize renewable chemicals and fuels, that is a good thing.The company revealed earlier this year that it would reign in plans for production at two different facilities because of issues with biofuel production yields. For a company that has already gone public, formed major partnerships and proven that synthetic biology and the use of superbugs could potentially rank near the top of all fuels or chemicals production methods, the announcement was a setback for both stock prices and the assumption that if any company would succeed first, it would be Amyris.

But don’t worry; no giant names such as Microsoft Corp. or Samsung are fighting for brand loyalty in the bioenergy sector by a first-to-market strategy. Just ask Rob Stone, a technology generalist admittedly burdened with an overactive curiosity about everything. Stone, the managing director of equity research for financial services firm Cowen and Co., has been following the clean technology sector since 2005 to provide general investment insight for everything from solar arrays to catalytic hydrocracking methods and the companies that use them. “Being first to market and establishing a brand has significance in end markets where it matters to grab consumer mind share,” he says, citing iPads or Tablet PCs. But in an enormous, trillion-dollar market like fuels and chemicals, he adds, there is room for multiple players and, in fact, customers want more than one supplier to leverage price.

In simple terms, for the majority, when we buy gas, we just want the physical product at the lowest price, regardless of the name that goes with it.

Still, there are benefits of entering the advanced biofuels and biobased chemicals market more quickly than others, Stone points out. Those early entrants will be in a better position to gather additional capital for future expansions and other projects, he says. If the segment of early entrants is profitable, however, some financial backing will go to competitors.

Technology Over Timing

LanzaTech knows exactly what Stone means in more ways than one. When Range Fuels’ plan for an advanced biofuels venture in Soperton, Ga., failed, New Zealand-based LanzaTech pursued the advanced biofuels market using the shuttered biorefinery. Jennifer Holmgren, CEO of LanzaTech, notes that purchasing the plant made sense because of the existing infrastructure at the facility, as well as the opportunity to tap into the region’s available wood basket. Entering the market first, however, holds little relevance to the company’s goals, which strive more toward delivering the best possible product through optimal technology. “Being first to market will present significant business opportunities,” she says. “However, this is really only the case if your product is able to really deliver. There is no sense rushing through a sub-optimal technology at the expense of being the first.”

In fact, for this industry, both Holmgren and Stone imply that more players in the market is better. “We are fortunate to be working in a space where there are multiple players,” she says. More approaches and more information, especially from failed ventures, provide companies like LanzaTech with more perspectives that help develop processes further, she added. But failed technologies or businesses are not the same as stalled or slowed ventures, she cautions. Because most companies in the sector are often painted with the same brush, she says, the failure of similar companies can attribute to a fall in confidence in the sector as a whole.

Stone adds a different point of view, saying that if a technology or company in the sector works, a significant lift occurs in overall valuation for the entire market. “That’s why venture backers and other funders will end up funding a number of companies in the space,” he says. Stone believes that that probability makes the advanced biofuels and biobased chemical sector appealing and interesting for investors. “There are so many opportunities and the markets are so large and diverse.”

The bioenergy industry does represent a real opportunity, and not just because of the huge financial possibility, or the reality that being first to market doesn’t apply. Stone says soon-to-be commercial advanced biofuel producer KiOR Inc. is a good example, with its work on southern yellow pine trees in Mississippi. The company is akin to a vertically integrated oil company that combines production, exploration and refining. Identifying a wood basket is like discovering a well that may never run dry, he says, and the technology of most advanced biofuel firms presents an interesting opportunity that traditional oil and gas companies cannot claim.

“If this stuff (technology like KiOR’s) works, unlike an oil well, it will produce level output if not rising output,” Stone says, attributing the statement to the fact that a better catalyst for a biofuel process can always be created and the process can be tweaked over the 40-year lifespan most plants will operate. With a traditional oil well, the start of the production process is high based on optimal well pressure, but will be depleted over time. An operation has to use more enhanced recovery techniques to produce the same amount of product because of falling output and higher recovery costs.

So it seems as though following the leaders and learning from their mistakes might be the best strategy in the advanced biofuels and biochemicals sectors.

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